Mortgage backed securities (MBS) prices are higher (rates lower) as investors digest the economic reports released this morning; FNMA 4.0% coupon 100.23bps, +3bps. The Fed lowered its projections for U.S. economic growth as policy makers who saw signs of stabilization are not convinced those improvements will persist. They see significant downside risk for the economy with the global financial system vulnerable to further shocks and they may need to further increase their quantitative easing program. The U.K's credit rating was cut, the 5th European Union nation to lose its rating because of the economic slump, joing Ireland, Greece, Portugal and Spain. Former Fed Chief Greenspan warned banks will need to raise large amounts of money to fund capital requirements. A lack of capital at banks may inhibit lending to consumers and businesses, tempering any economic recovery. Banks are struggling with rising loan delinquincies with nearly 8% of residential real estate loans behind in the 1st quarter. This has diverted investors from stocks to the relative safety of fixed income assets, like MBS. The DOW is down almost 200 points at the open. The Fed will purchase Treasuries today, part of its effort to reduce lending rates and lift the economy out of recession. The Treasury will announce today the size of 2, 5 & 7yr note sales scheduled for next week, part of a record borrowing spree by the administration. Intial jobless claims fell 12K to 631K from a revised higher 643k last week and the total number of people collecting benefits rose 75K to 6.66 million. Job losses remain severe, signs the job market continues to weaken and companies are not hiring. Leading Economic Indicators (LEI) rose a resounding 1.0% in April as the big stock market rally and rising consumer expectations were positive factors while building permits was a continued source of weakness. The Philadelphia Fed Index was little changed at minus 22.6 indicating steady contraction with no improvement in new orders, however a strength going forward is growing optimism. Yields indicate efforts to revive trading that froze last year are working as the 3mo LIBOR declined 6bps to 0.66% today.